Although outbound FDI from the US is forecast to fall in 2017, US-based multinationals still see investment outside the US market as central to their corporate growth plans – according to new research from TMF Group and Forbes Insights.
- North America and Western Europe remain preferred investment markets for 2017/18
- Significant increase in anticipated Australian investments, up 9.2%
- 1 in 4 investors are looking for new talent or sources of capital
- 1 in 3 stress the importance of thorough research and local market knowledge
Although outbound FDI from the US is forecast to fall in 2017, US-based multinationals still see investment outside the US market as central to their corporate growth plans – according to new research from TMF Group, a global provider of corporate and administrative services, and Forbes Insights.
The study ‘Venture Further: what drives international expansion and investment by US businesses?’ canvassed the views of 250 US-based C-Suite Executives to explore the motivations and challenges of US-headquartered multinationals in taking their organization into a new international market. Respondents were drawn from a wide selection of industries and from organizations with annual revenues ranging in size from $250 million to over $5 billion.
Respondents were asked into what regions their organizations had invested in the last two years, as well as where they planned to invest in 2017/18.
- The results showed that the developed economies of Northern and Western Europe (including France, Germany, the UK and Ireland) as well as the rest of North America (i.e. Canada) remain the most favoured destinations for investment over the next two years for half of the businesses surveyed.
- Despite the FDI downturn, the emerging markets of South America also remain a destination of choice for over a third (36.4%).
- However, a significant uplift in interest was recorded for Australia and New Zealand, with 9.2% more respondents saying that they would invest in the region over the next two years than had done over the last two years.
- A smaller increase (+3.2%), but still one that bucked the global downward trend, was also recorded for Eastern Europe.
In addition, the survey asked what motivated US-businesses to explore new foreign markets and what challenges they had faced.
- The most common motivators were to open new markets and gain market share (45.6%) and expand existing operations (42%). However, just over a quarter were looking for new resources to enhance their business: to find new talent and skills (28.8%) and new sources of capital (26.8%).
- Having entered a foreign market, there was some uniformity across respondents in the challenges they faced. Getting the business established with banking and accounting records (31.6%), identifying premises and/or a process agent (31.2%) and selecting and incorporating the right entity type (30%).
- Additional issues were presented in finding and providing official evidence of a company’s ‘good standing’ (28.8%) and complying with local data protection and privacy laws (28.4%).
Commenting on the key findings, Raimundo Diaz, Regional Head of the Americas for TMF Group, said: “It’s encouraging to note that, while overall outbound FDI may drop slightly, US-businesses are still actively exploring new markets to pursue their corporate growth.
“After all, the world is full of business opportunities; new markets to enter, new demand to satisfy. Companies are only limited by their ambition.”
He continued: “Of course, the challenge of getting established in a new market will be more or less complex according to jurisdiction: everything from selecting and incorporating a new entity, establishing banking and accounting processes and records to complying with local data protection laws. Detailed market knowledge is vital.”
Reflecting on their experiences respondents were asked if they could give a peer - considering international investment or expansion - one piece of advice, what it would be.
- More than a third (36%) stressed the importance of research and pre-planning: to be clear on your reasons for investment or expansion and to thoroughly investigate and understand the territories political, economic, social and legal landscape.
Diaz concluded: “The importance of local knowledge when entering a new market cannot be underestimated. Whether you are looking to extend or enhance existing operations or looking for new opportunities, it is important to fully understand the local complexities of any given market to make sure your operations are – and remain – fully compliant with what could be a rapidly changing regulatory landscape.”
To find out more about TMF Group and to download the full report: www.tmf-group.com/venturefurther
For more information, please contact:
Forbes Insights is the strategic research and thought leadership practice of Forbes Media. By leveraging proprietary databases of senior-level executives in the Forbes community, Forbes Insights conducts research on a host of topics of interest to C-level executives, senior marketing professionals, small business owners and those who aspire to positions of leadership, as well as providing deep insights into issues and trends surrounding wealth creation and wealth management. www.forbes.com/forbesinsights/
VENTURE FURTHER: What drives international expansion and investment by US businesses?
In March 2017, TMF Group - in association with Forbes Insights - canvassed the views (via an online poll) of 250 C-suite Executives from US-headquartered multinational companies to understand their motivations and challenges in taking their organization into a new international market. The respondents were drawn from a wide selection of industries and from organizations with annual revenues ranging in size from $250 million to over $5 billion.
• 250 US-based C-Suite Executives from multinational companies: CEO, CFO, COO and CLO.
• Nearly three-quarters of respondents (71.6%) worked for organizations with annual revenues of over $1 billion.
• The majority (70.8%) were also responsible for overseeing operations in more than 6 countries, while one in four (24.8%) for operations in over 10 international markets.
Top 10 global investment and expansion destinations for US-based multinationals in 2017/18
|
|
|
2015 -2016
|
2017 -2018
|
Ranking change
(2015 - 2016) /
2017 - 2018
|
+ / -
|
|
WESTERN EUROPE
|
Austria, France, Germany, Liechtenstein, Monaco, Switzerland
|
58.4%
|
51.6%
|
(2) / 1
|
-6.8%
|
|
NORTH AMERICA
(Excl. USA)
|
Bermuda, Canada, Greenland, Saint Pierre and Miquelon
|
59.2%
|
50.0%
|
(1) / 2
|
-9.2%
|
|
NORTHERN EUROPE
|
Channel Islands, Ireland, Isle of Man, United Kingdom
|
44.4%
|
43.6%
|
(3) / 3
|
-0.8%
|
|
AUSTRALIA &
NEW ZEALAND
|
Australia, Christmas Island, Cocos, New Zealand, Norfolk Island
|
33.2%
|
42.8%
|
(5) / 4
|
+9.6%
|
|
SOUTH AMERICA
|
Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Falkland Islands, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela
|
39.2%
|
36.4%
|
(4) / 5
|
-2.8%
|
|
EASTERN EUROPE
|
Belarus, Bulgaria, Czech Republic, Hungary, Poland, Republic of Moldova, Romania, Russia, Slovakia, Ukraine
|
26.0%
|
29.2%
|
(10) / 6
|
+3.2%
|
|
SOUTHERN EUROPE
|
Albania, Andorra, Bosnia and Herzegovina, Croatia, Cyprus, Gibraltar, Greece, Italy, Macedonia, Malta, Montenegro, Portugal, San Marino, Serbia, Slovenia, Spain, Vatican City
|
32.4%
|
28.8%
|
(7) / 7
|
-3.6%
|
|
SOUTHERN ASIA
|
Afghanistan, Bangladesh, Bhutan, India, Iran, Maldives, Nepal, Pakistan, Sri Lanka
|
32.8%
|
28.0%
|
(6) / 8
|
-4.8%
|
|
EASTERN ASIA
|
China, Hong Kong, Japan, Korea (North), Korea (South), Macau, Mongolia, Taiwan
|
29.6%
|
27.6%
|
(8) / 9
|
-2.0%
|
|
CENTRAL AMERICA
|
Belize, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama
|
28.4%
|
25.6%
|
(9) / 10
|
-2.8%
|
What motivates US business to explore new markets?
|
To open new markets and gain market share
|
45.6%
|
|
To expand existing operations / service lines
|
42.0%
|
|
To create / improve R&D and technology resources
|
30.0%
|
|
To find new talent and skills
|
28.8%
|
|
To find new sources of capital
|
26.8%
|
|
A customer contract required local presence
|
24.8%
|
|
To establish a shared service center
|
23.6%
|
|
Financial and corporate restructuring/establishment of special purpose vehicle (SPV)
|
22.8%
|
|
To buy a competitor
|
20.8%
|
|
To decrease operational cost/operate more cost effectively
|
12.0%
|
|
Other M&A activity
|
10.0%
|
What are the biggest challenges that US businesses face when entering a foreign market?
|
Establishing banking and accounting measures and statutory records
|
31.6%
|
|
Identifying the right premises and / or process agent
|
31.2%
|
|
Selecting and incorporating the right entity type
|
30.0%
|
|
Finding and providing official evidence of ‘good standing’
|
28.8%
|
|
Data protection considerations and privacy laws
|
28.4%
|
|
Operating within trade union and collective bargaining agreements
|
28.0%
|
|
Finding the right local talent and adhering to labor laws
|
27.2%
|
|
Rules on transfer pricing and/or repatriation of profits
|
25.6%
|
|
Appointment of local directors and/or representatives
|
22.4%
|
|
Additional licensing requirements and/or revised constitution following merger or acquisition
|
20.0%
|
|
Rules relating to the transfer of staff from acquired/merged operations
|
20.0%
|
|
Compatibility of local financial reporting rules with international reporting systems and standards
|
21.6%
|
|
Intellectual property agreements and enforcement
|
19.6%
|
|
Unique cultural expectations and language barriers
|
19.6%
|
|
Rules relating to ‘restricted’ industries
|
18.8%
|
|
Detailed record checks of company directors (including disclosure of ultimate beneficial owner (UBO))
|
13.2%
|
|
Antitrust or competition law
|
10.4%
|
With the benefit of hindsight, what one piece of advice would US business leaders give to their peers?
|
PLAN THOROUGHLY AND DO YOUR RESEARCH
|
Be clear on your reasons for investment/expansion and don’t make false assumptions about a local market. Make sure that you investigate the territory’s political, legal and cultural environment, as well as the competitive landscape, target market and/or workforce.
|
36.0%
|
|
CONSIDER JOINT VENTURES AND ACQUISITIONS
|
Consider joint ventures and acquisitions. One way to avoid some of the effort, cost and risk of setting up in a new territory is to buy an existing operation or create a joint venture with an existing operation. However, these options come with their own risks and professional assistance should be sought.
|
23.6%
|
|
CONSIDER A SINGLE SUPPLIER TO MANAGE YOUR MULTI-TERRITORY RELATIONSHIPS
|
One of the key issues in managing expansion is the gathering, processing and reconciliation of operations, financial and legal data across multiple territories. Using a single strategic supplier to handle these as outsourced functions could help provide consistency across processes and standards.
|
18.8%
|
|
GET HELP FROM THIRD PARTIES
|
Local service providers, chambers of commerce and advisors are invaluable, particularly when creating a new legal entity, recruiting and training staff and setting up your back-office function.
|
10.8%
|
|
CONSIDER OUTSOURCING
|
Don’t under-estimate the operating costs in a local market. The boundary between what you do in-house and what you outsource should remain fluid, and be constantly reassessed over time.
|
10.8%
|